Xstrata Faces Glacial Hurdles To Build New Argentina Copper Mine

BUENOS AIRES, May 26, 2011 (Dow Jones Commodities News Select via Comtex) -- Argentina's controversial new glacier-protection law is threatening to complicate Anglo-Swiss mining company Xstrata PLC's (XTA.LN) plans to build the $4.1 billion El Pachon copper mine.

Last year, President Cristina Fernandez signed into law a bill that limits economic activity in the areas surrounding glaciers.

Now one influential local environmental organization claims that El Pachon will destroy a large number of glaciers if it moves forward as planned.

There are over 200 glaciers at the site, as well as extensive permafrost zones and 60 subsurface glaciers, said Daniel Taillant, founder of environmental advocacy group Cedha.

"As is, the El Pachon project is illegal...and if the company moves forward, it will face lawsuits," he said in an interview. Cedha, which Taillant founded with his wife, Argentina's former environment minister Romina Picolotti, says the group is planning to launch legal or other campaigns against El Pachon if the plan is not modified to protect the glaciers.

Xstrata bought the mine project and the mineral rights for El Pachon, which straddles the border of Argentina and Chile, in 2006.

The mine is on track to start operating in 2016 after three years of construction, with initial output estimated at 400,000 metric tons of copper per year, according to the company.

Xstrata owns 50% of the massive Bajo de la Alumbrera gold-copper mine in neighboring Catamarca Province, which produces 150,000 metric tons of coper and 400,000 ounces of gold per year, according to the company.

A spokesman for Xstrata Copper said the company "has worked in full compliance with all applicable regulations to update previous feasibility studies," and is currently working with international experts and institutions to complete the Environmental Impact Assessment. Next year, the assessment will be submitted to Argentine and Chilean authorities for evaluation, the spokesman said.

"Once the IEA is presented, it will be a good time for an interdisciplinary analysis of the best recommendations for its future development," San Juan Province mining minister Felipe Nelson Saavedra said in a statement this week.

The minister released the statement following a meeting with Taillant where they discussed developing a protocol system laying out environmental standards for mining development in the region.

Taillant said that such a protocol would involve bringing together miners, non-governmental organizations and glacier scientists to develop guidelines for best practices in the industry.

The companies may just welcome such a move, as Argentina's glacier law is very vague in defining just what areas are protected.

Earlier this year, the federal government took the first step toward implementing the law, ordering a nationwide inventory of glacial ice that will determine which areas will be put off limits to mining.

Preliminary data will be available in a year, although it will likely take five years to complete the full study, Environment Secretary Juan Jose Mussi said at the time.

But the law already faces several legal challenges, with a number of provinces questioning its constitutionality.

In November, a federal judge in San Juan province suspended key provisions of the law at the behest of labor unions and mining industry associations until the Supreme Court can rule on its validity.

Barrick Gold Corp. (ABX, ABX.T) convinced the same judge to suspend the glacier law with regards to its Veladero and Pascua Lama mines. The Pascua Lama gold and silver mine, currently under construction, carries an estimated price tag of $3.3 billion to $3.6 billion, with production scheduled to start during the first half of 2013.

Mining enjoys strong support from San Juan Governor Juan Jose Gioja because of the benefits to the province's economy in the form of royalties, jobs and spending.

Between 2003 and 2010, mining exports from the province rose to $2.2 billion from $147 million, while San Juan's economic output surged 115%, Gioja said in an interview with provincial newspaper El Libertario.

Argentina's constitution limits the federal government to setting the basic standards for environmental protection, but leaves the implementation of those standards to the provinces. However, the courts have yet to clearly define the fine line between state and federal rights.